HQ 546166 - Internal Advice Concerning Appraisement of Lamp Parts; Related Party Transactions; 19 U.S.C. 1401a(e); HRL 542315, TAA No. 25 - United States International Trade Commision Rulings

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HQ 546166

April 5, 1996

VAL RR:IT:VA 546166 LPF

CATEGORY: VALUATION

Port Director
U.S. Customs Service
P.O. Box 3130
Laredo, TX 78044

RE: Internal Advice Concerning Appraisement of Lamp Parts; Related Party Transactions; 19 U.S.C. 1401a(e); HRL 542315, TAA No. 25

Dear Director:

This is in response to a request for internal advice submitted by General Electric Lighting (GEL) and received by our office on October 20, 1995. The request concerns the appraisement of lamp parts imported from Mexico.

FACTS:

GEL imports various lighting products assembled in Mexico by Lamparas GE SA de CV (Lamparas). Lamparas is a wholly-owned subsidiary of the General Electric Company (GE) while GEL is an operating component of GE. GEL submits that the pricing of the imported products was established through a process of negotiation between GEL and Lamparas, which serve as separate profit centers within GE. GEL explains that the transfer price between the parties was negotiated and established in a manner which would ensure that Lamparas would recover its costs plus a reasonable profit, determined to be a certain percentage over cost.

GEL further states that when the merchandise is shipped from Lamparas to GEL, it is invoiced an amount representing estimated standard costs, established in accordance with generally accepted accounting principles (GAAP), with the negotiated percentage added for profit. Invoices and wire transfers evincing such payment were submitted. We understand that the agreement between Lamparas and GEL provides for periodic payments between the parties for variances that may occur from the agreed upon transfer price.

Although GEL opines that the merchandise should be appraised based on transaction value, pursuant to ?402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a, you submit that computed value (?402(e)) is the appropriate method of appraisement.

ISSUE:

Whether the evidence submitted demonstrates that the price paid by GEL to Lamparas was acceptable for establishing transaction value.

LAW AND ANALYSIS:

As you are aware, the preferred method of appraising merchandise imported into the U.S. is transaction value pursuant to ?402(b) of the TAA. However, imported merchandise is appraised under transaction value only if the buyer and seller are not related, or if related, the transaction value is deemed to be acceptable. In this case, Lamparas, the seller, and GEL, the buyer, are related pursuant to ?402(g)(1)(G) of the TAA. Section 402(b)(2)(B) of the TAA provides that a transaction value between related parties will be deemed acceptable if an examination of the circumstances of sale indicates that the relationship between the parties did not influence the price actually paid or payable or where the transaction value closely approximated certain "test" values.

Initially, we note that no previously accepted values, which could serve as test values in the instant case, have been shown to exist. However, under the circumstances of sales approach, if the parties buy and sell from one another as if they were unrelated, transaction value will be considered acceptable. Thus, if the price is determined in a manner consistent with normal industry pricing practice, or with the way the seller deals with unrelated buyers, the price actually paid or payable will be deemed not to have been influenced by the relationship. Furthermore, the price will not be considered to have been influenced if it is shown that the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm's overall profit realized over a representative period of time in sales of merchandise of the same class or kind. Statement of Administrative Action (SAA), reprinted in Customs Valuation under the Trade Agreements Act of 1979, Department of the Treasury, U.S. Customs Service (October 1981) at 54; section 152.103(j)(2), Customs Regulations (19 CFR 152.103(j)(2)).

In the present matter, it has not been demonstrated that the circumstances of sale indicate that the relationship between the parties did not influence the price. Specifically, the evidence presented does not sufficiently demonstrate that the price is determined consistent with industry practice or with the way the seller deals with unrelated buyers. Furthermore, GEL's position that the transfer price ensures that Lamparas would recover its costs plus a reasonable profit does not satisfy the conditions of the costs plus profit factor as articulated in the SAA. We emphasize that the SAA provides that the price will not be considered to have been influenced if it is shown that the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm's overall profit realized over a representative period of time in sales of merchandise of the same class or kind (emphasis added). No such comparison of the price to the firm's overall profit has been provided for our review.

Finally, we note contrary to the position advanced by GEL, that the fact the transfer price was established in accordance with generally accepted accounting principles (GAAP) does not serve as prima facie evidence that the price constitutes an acceptable transaction value. Although Customs acknowledged in Headquarters Ruling Letter (HRL) 542315, TAA No. 25, issued May 13, 1981, that transfer prices established in accordance with GAAP may provide a legitimate statutory basis for establishing transaction value, Customs did recognize, however, that a determination still must be made concerning the acceptability of the related party price. In other words, regardless as to whether a transfer price ultimately is found to constitute an acceptable transaction value, it should nevertheless have been prepared in accordance with GAAP.

Insofar as it is appropriate to proceed sequentially through the subsequent provisions of section 402 of the TAA for an alternative method of appraisement and no evidence has been submitted calling into question appraisement under computed value (?402(e)), we find it appropriate, based on the facts provided, to appraise the subject merchandise in this manner.

HOLDING:

Based on the evidence submitted, it has not been demonstrated that the price paid by GEL to Lamparas was acceptable for establishing transaction value. It is appropriate, based on the facts provided, to appraise the subject merchandise under computed value (?402(e)).

This decision should be mailed by your office to the party requesting internal advice no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

Acting Director,

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